Forex Presentation Part #1
• A Brief Introduction To Forex
Forex is known as the top place to trade currencies. Because of this, forex has become one of the largest liquid financial markets in the world. There is over $4 trillion traded per day in the forex market.
And the best part of all of this…is that the trading is conducted OTC or over-the-counter…
In other words…you get to do it in the comfort of your own home or anywhere there is an internet connection!
• Historically Speaking…
Only large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals had the resources to participate in the forex market. However, now, with the emergence and popularization of the internet and mainstream computing technology, it is possible for average investors to participate.
• I can NOT say this enough…
The forex market provides plenty of opportunity for investors. However, in order to trade profitably in this market, currency traders have to take the time to learn about forex trading and dedicate enough time to practice what they’ve learned.
• Forex is a commonly used abbreviation for “foreign exchange,” and it is typically used to describe trading in the foreign exchange market by investors and speculators.
What is Forex?
• Imagine a situation where the U.S. dollar is expected to weaken in value relative to the euro. A forex trader in this situation will sell dollars and buy euros. If the euro strengthens, the purchasing power to buy dollars has now increased. The trader can now buy back more dollars than they had to begin with, making a profit.
Forex vs Stock
This is similar to stock trading. A stock trader will buy a stock if they think its price will rise in the future and sell a stock if they think its price will fall in the future. Similarly, a forex trader will buy a currency pair if they expect its exchange rate will rise in the future and sell a currency pair if they expect its exchange rate will fall in the future.
Each forex transaction involves two different trades:
The purchase of one currency and the sale of another. That is why forex quotes are quoted as a combination of two currencies, which is known as a currency pair. The most heavily followed and traded currencies are USD, EUR and GBP
• Currency Quote
When you look at a currency quote…
You will notice that all currencies are quoted in a pair
Example: USD/CAD or USD/JPY.
When you buy a currency you are selling a different one as well.
• Exchange Rates
Exchange rates tell you how much you will pay/receive if you buy/sell the “base” currency
Standard format example EUR/USD = 1.987. In this example, the currency to the left of the slash (EUR) is referred to as the base currency, and the currency on the right (USD) is the quote or counter currency.
The base currency (in this case, the EUR) is always equal to one unit (in this case, EUR = 1), and the quoted currency (in this case, the USD) is what that one base unit (EUR) is equivalent to in the other currency (USD).
This example quote shows that if you wanted to buy EUR1 (euro), you would have to pay 1.987 USD. Or if you wanted to sell EUR1, you would receive 1.987USD.
• Another Example…
USD/JPY = 1.6589
USD = base currency
JPY = quote/counter currency
USD = $1 because it is the “base”
This example quote shows that if you wanted to:
Buy USD$1, you would have to pay 1.6589JPY (yen)
Sell USD$1, you would receive 1.6589JPY
• RECAP… Questions
Forex is an abbreviation for the Foreign Exchange
All trading is conducted OTC meaning what?
Over the counter… trade wherever there is an internet connection!
Historically Speaking who traded the forex market?
Large institutions, corporations, central banks, hedge funds and extremely wealthy individuals
In order to trade profitably…traders must what?
Take the time to learn, study and practice (demo)
The USD is expected to weaken in value relative to the EUR…what will the trader do?
Sell dollars and buy euros
The most heavily traded currencies are USD, EUR & GBP
Each forex transaction consists of two trades, what are they?
The purchase of one currency and the sale of another
Exchange rates tell you how much you will __??__ if you __??___ the “base” currency
Which is the base and which is the quote/counter currency? USD/CAD = 0.9421
USD is the base currency, CAD is the quote/counter currency
What does the above example quote mean?
Buy USD $1 – you would have to pay 0.9421 CAD (Canadian dollars)
Sell USD $1 – you would receive 0.9421 CAD
• TAKE A BREAK!!!
We will go over Part 2 next!